How much money you need to start trading forex will depend on a few different factors. Amongst the major deciders will be minimum account opening funding requirements, your goals, any fees or charges on your trading account and your risk management strategies.
Consider the minimum opening funding requirements
Many forex trading platforms will set a minimum initial capital investment. With ForexCT, this figure is a minimum of $500 to open up a trading account. Trading margin foreign exchange gives you the advantage of leverage: where you only need to put up a relatively small fraction of the underlying asset’s face value as margin, but still get exposure to the full face value.. With ForexCT, this can be up to 400:1 leverage. Whilst the potential profits from using leverage can be high, so can the potential losses. Therefore, it is important that you trade sensibly, do not use too much leverage and have sufficient margin in your trading account to ‘weather the storm’ if the market moves against you. You will ultimately need to make an assessment about how much is right for you.
Manage your risk when starting out
Whilst everyone’s risk tolerance is different, we believe that traders should practice sensible risk management. A standard rule of thumb used by many forex day traders is not risking more than 1% of their account on any single trade.. That means if you start with $500, your maximum risk would be a maximum of $5 per trade, or $10 for a $1,000 account. Why? If you happen to have a string of losses (and even the most successful traders can experience this) then you won’t lose momentous amounts of your capital investment. In fact, using the 1% rule, you would need to lose 100 trades in a row to fully deplete your account equity.
Think about your goals
How long are you intending to trade for? What are your objectives for trading? Are you a complete beginner, or do you have a good idea of how the market works? Having a trading strategy will also play an important role in managing risk. It’s always a good idea to speak with your independent financial planner so they can tell you exactly how much you can allocate to trading margin foreign exchange.
Look at the fees and charges
Depending on who you’re trading with, there may be some fees and charges which you should take into account. You can generally find information about these on their website. One of the more common charges that forex providers will charge is the ‘spread’. The spread represents the difference between the bid and ask prices and is measured in ‘pips’. ForexCT’s spread is fixed, meaning that even if there’s a volatile change in the market, the spread will not widen. In other words, you know exactly how much you will be charged – this creates an element of transparency and certainty.